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ABI warning on FSCS reforms

ABI director general Stephen Haddrill has written to Chancellor Alistair Darling, warning that reforms to the Financial Services Compensation Scheme “must not distort the market for savings or remove all risk”.

Haddrill wrote the letter after a meeting of the ABI board to review the implications of the Northern Rock saga.

In the letter, he says: “We supported the measures taken to restore confidence in Northern Rock and the market as a whole. However, those measures can only be a temporary solution.

“The public is now highly likely to perceive that one part of the financial services market will not be allowed to fail. That perception will distort savers’ decisions about where to put their money, drawing them towards cash deposits and away from investment products. It is a perception that will injure the investment and insurance market while at the same time is unwelcome to the banking sector which is, and wishes to be seen as, capable of standing rob-ustly on its own.”

Haddrill says the market must return to level ground as soon as possible and that full protection for the biggest depositors is not necessary.

He says: “Our initial analysis suggests that we should increase the 2,000 threshold below which compensation is paid at 100 per cent. More analysis is needed but we see attractions in setting the 100 per cent threshold at about 30,000, at which level it would cover 98 per cent of savers and would be consistent with the levels for insurance products, avoiding market distortions.”

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